Consumers Apply for Fewer Mortgages

During the first week of February the number of mortgage applications dropped. This was not particularly good news for the economy because it means that the demand for new homes is falling even as the recovery tries to find stronger footing. The falling demand for mortgages occurred despite the availability of some of the lowest rates seen on 3-year mortgages since December. Mortgage application figures include new mortgages and refinancing requests.

The 30-year fixed rate mortgages are currently being financed at 4.94 percent. This is the lowest rate seen since 18-December-2009. The numbers were released by the Mortgage Bankers Association and are cause for concern. They clearly show consumers are still struggling or unwilling to spend money which is not surprising since the unemployment rate remains at 10 percent nationwide.

The number of applications for new home mortgages and refinanced mortgages declined by 1.2 percent for the week ending 5-February-2010. The interest rates on 30-year fixed mortgages have not fallen below 5 percent since December, and it had been hoped the low interest rates would spur the housing market.

The one glimmer of hope is that this may be a temporary decline and the number of applications will begin to trend upward again. The lowest that mortgage rates have fallen over the last twelve months is to 4.61 percent in March 2009. The prediction is that mortgage rates will increase on 30-year fixed mortgages to 5.5 percent by the middle of this year.

To stimulate the economy, the Federal Reserve has been buying mortgage-backed securities and that program is ending in March. Ending the program probably means that interest rates will begin to rise because the securities purchases worked to lower borrowing costs. The mortgage industry has been in a 3-year slump as housing prices continue to fall.

Despite signs of a recovery, it is clear that the U.S. economy has a long way to go before it will be on even ground again. In the fourth quarter of 2009, one out of every five U.S. homes was underwater. This means the mortgage is more than the market value of the house. There is still ongoing debate between the banks and the government policymakers as to how the banks should remove the inflated assets from the balance sheets.

The number of foreclosures continues to rise too. Consumers are cautioned to be alert to possible scams. There is a dearth of mortgage relief companies offering consumers assistance with getting their mortgages modified. The companies require a fee up front for their services and then fail to deliver help.

The Federal Trade Commission has proposed new rules that would ban these mortgage relief companies from charging up-front fees. They would not be allowed to charge a fee until services were provided as promised.

The total number of mortgage applications for the first week of February was made up of 69.7 percent refinancings with the balance being new mortgage applications. The 15-year mortgage rates are low also at 4.33 percent.

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